The Benefits and Risks of Buying an Off-the-Plan Property

benefits-risks-off-the-plan-property-investment

Would you invest in a Harford County rental property without first seeing it?

If so, you are one of the many property owners that might enjoy the idea of purchasing a not-yet-constructed, brand spanking new rental home.

While being the first to purchase a property that has never been lived in can be exciting and offers plenty of benefits, there are also risks that come along with investing hard-earned cash into something that is not yet complete.

If you are considering buying an off-the-plan property in the Harford County area, read on to see some of the most common benefits and risks of buying this type of property.

 

What Does Investing Off the Plan Mean?

Essentially, investing in a rental property that is off-the-plan means purchasing it before it has been built.  Typically, you enter into a contract with the housing developer to buy a property that may not be completed for some time.  This may mean months or even years, depending on the status of the community the property is located in.

The overall process of buying an off-the-plan property is simple.  Oftentimes you will receive digitalized imagery of the property, view scaled models, or even enter real life showrooms to gain insight into what your off-the-plan property will look like upon completion.  From there, you make your decision based on the property’s plans, location, and expected finishing touches.

 

The Benefits of Buying an Off-the-Plan Harford County Property

benefits-off-the-plan-property-investment

There are many perks to investing in an off-the-plan property, especially in the growing Harford County region.

 

Price Locks

One of the biggest advantages to buying an off-the-plan property is the price lock you will enjoy.  Though your property will not be finished until a future date (when appreciation and market growth may call for higher housing prices), you are locked into the current market price at the time of purchase.  This equals the potential for large savings down the road and of course, higher positive cash flow when you lease your rental to tenants.

 

Discounted Purchase Prices

In addition to reveling in current market prices, you may enjoy the fact that developers often propose off-the-plan properties at discounted rates with additional incentives in order to make the status quo and secure the finances needed to finish building the community.  It is important to note, however, that this is not always the case and that you should always research your investment decisions before finalizing them to make sure you get a great deal.

 

Buy Now and Pay Later

The process for investing in an off-the-plan property is usually the same regardless of where you are buying.  When the property is under construction, you will usually pay a 10% deposit to the developer, thus securing your purchase.  The remaining balance is not typically due until the development is complete, which can vary anywhere between 12 months and 5 years.

 

Customization Options

When you decide to invest in a Harford County rental property that has yet to be built, chances are you will have more flexibility when it comes to your choice of flooring, fittings, and finishes.  And, while all of these extras do cost more, they ensure your rental will have the exact appeal you want it to have in order to secure top-notch tenants come completion time.

 

The Risks of Buying an Off-the-Plan Harford County Property

risks-investing-off-the-plan-rental-property

As thrilling as landing a great deal, outfitting your investment property to match your exact design needs, and not having to pay the full purchase amount until sometime in the near future is, there are definitive risks that come with buying an off-the-plan rental home.

 

A Falling Market

If anyone could have foreseen that in the mid-2000s the American housing bubble would burst wide open, leaving even some of the strongest banks in the nation to collapse thanks to mortgage defaults, no one would have risked purchasing an off-the-plan property.

Why, you ask?

Because the purchase price you conveniently locked in the at the time of purchase, the one you had high hopes of appreciating over time as the housing market thrived, would have been a major overpayment by the time the development of your investment property was complete – if it was even finished.

Overpaying is a major risk you face when buying an off-the-plan property.  More so, you may find it more difficult to secure financing for the rest of the amount you owe come completion time if the housing market has gone down.

 

Failed Expectations

Many developers will not let property owners view their purchased properties until the entire project is completed.  This increases the risk that what you envision the final product to look like will not meet your expectations.  And unfortunately, since you have already invested in the property, you are stuck.  In addition, you may be disappointed with the quality of the workmanship.  Again, except for investing more of your hard-earned cash into the property to fix these failed expectations, you are simply out of luck.

 

Financing Issues

Home loan pre-approvals are usually only valid for 3-6 months.  That’s why it is a good idea to renew your pre-approval periodically during construction.  If not, you may be ready to pay the remainder of the purchase price for your Harford County rental property at completion time and find yourself unable to qualify for a home loan.

 

In addition, keep in mind that lender policies frequently change which may hinder your pre-approval being renewed throughout your property’s construction period.  In the end, meeting with your lender regularly will help offset some of the financial risks of purchasing an off-the-plan property, but will not guarantee complete protection against a loss of financing.

 

Builder Bust

Though unlikely to happen, investing in an off-the-plan property always makes you vulnerable to the stability of the developer.  There are plenty of horror stories circling around that involve developers going broke before the completion of a development and halting construction altogether.

In order to protect yourself from financial ruin that leaves you with no property to lease, it is vital you discuss what measures will be taken should the developers go into bankruptcy or halt construction for any reason.  This may include what type of guarantees the developer will offer you and whether you will get your deposit back should the project fail.

 

In the end, there are many pros and cons to buying a Harford County rental property off-the-plan.  And, while the notion of purchasing a never lived-in property can be exciting, you should really weigh the risks when it comes to paying for a property that is not even built yet.

If you do find yourself in the Harford County area with a completed off-the-plan property that works perfectly for your rental property business, consider contacting Bay Management Group to help you manage your property.  With lots of experience in the rental property industry, Bay Management Group provides property owners with exceptional property management services.  For instance, property managers on staff handle all tenant screening, lease drafting, regular inspections, and much more.

If you want to purchase a property off-the-plan and then let someone else handle everything property management related, contact Bay Management Group today.


Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>